Thursday, 24 July 2014

The Rs
2,29,000 crore that Finance Minister Arun Jaitley allocated for defence in the Bharatiya
Janata Party (BJP)-led government’s first budget on July 10, a mere 2 per cent
rise over the last government’s interim allocation in February, would have
disappointed those who were reading too literally the BJP’s manifesto and
nationalist rhetoric in the run up to the general election in May.

This would
also have disappointed the military, which was allocated just 80 per cent of
its projected requirement of Rs 2,85,202 crore.

The modest
allocation would suggest that the government anticipates a benign security
environment in the region, notwithstanding the United States and North Atlantic
Treaty Organisation troop drawdown in Afghanistan by end-2014.

Instead of placing
defence allocations on a trajectory towards 2.5-3 per cent of Gross Domestic
Product (GDP), which national security hard liners have argued for, Mr Jaitley
allocated just 1.78 per cent of GDP, only marginally higher than the interim
budget’s 52-year low of 1.74 per cent. This will amount to 12.75 per cent of the
central government spending this year.

In fact,
the defence spending actually amounts to 2.55 per cent of GDP if one takes into
account several expenditures that are not included in the defence budget, but
which most countries count as defence spending.

These
hidden expenditures includes (see Chart 1) Rs 3,639 crore allocated to the
defence ministry itself (Demand No 20); and Rs 51,000 crore earmarked for
defence pensions (Demand No 21). It includes Rs 8,737 allocated to the department
of atomic energy (Demand No 4), which develops, builds and stores India’s
nuclear weapons. It includes Rs 37,322 crore spent on border forces and
counter-insurgency forces like the Border Security Force, Indo-Tibet Border
Police, Assam Rifles and the Assam Rifles (Demand No 55). Finally, it includes
Rs 6,673 crore allocated to the Border Defence Management Board that builds
strategic roads for the military (Demand No 83).

Counting these
allocations, defence expenditure is actually Rs 3,36,371 crore, a full Rs
1,07,371 crore higher than the stated allocation. This amounts to 2.55 per cent
of GDP.

Of the
stated budget (see Chart 2), the army gets roughly half (49.5 per cent); the
air force almost a quarter (23 per cent); while the remaining quarter is shared
between the navy (16 per cent), the Defence R&D Organisation (DRDO), the
Ordnance Factory Board (OFB) and others.

The big
gainer this year is DRDO, which has seen funding rise from about 5 per cent to
6.5 per cent of the defence budget. Its capital budget has been raised by almost
60 per cent, to Rs 9,298 crore. This signals strong ministry support to
indigenisation projects under way, such as the Tejas Mark II fighter; the Arjun
Mark II tank; the Sagarika submarine launched ballistic missile (SLBM) and a
major new project to develop a 155 millimetre/52 calibre towed howitzer.

Worryingly
the modernisation budget (Rs 94,588 crore) remains significantly lower than the
revenue budget (Rs 1,34,412 crore), with a capital-to-revenue ratio of just
41:59. The army spends just 18 per cent of its budget on equipment. In
contrast, the navy and air force spend a healthy 61-62 per cent of their budget
on capital expenditure, i.e. new warships, aircraft, weapons and ammunition.

The army’s massive
manpower accounts for its high revenue spend, and this is set to grow. Defying
the global trend of army downsizing, two recently raised mountain divisions and
a planned mountain strike corps will raise the army’s numbers from 12 lakhs to
almost 13 lakhs.

The Parliamentary
Standing Committee on Defence figures reveal that the army’s equipment modernization
is steadily falling. In 2008-09, the army spent 27 paisa of each rupee on capital
expenditure. This fell to 24 paisa in 2009-10; 23 paisa in 2010-11; 20 paisa in
2012-13 and just 18 paisa in the last two years.

This army’s
payroll of Rs 65,808 crore this year (see Chart 3) will consume almost 60 per
cent of its entire budget, leaving just one-third that amount for new
equipment. This is so even after doubling the army’s capital allocation from Rs
10,749 crore last year to Rs 20,665 crore this year (see Chart 4). As the
cost-of-living index rises, so too will military salaries; the seventh pay
commission will raise them even higher.

Aircraft acquisitions are also lagging, due to the air
force’s dependence on expensive foreign purchases. Its capital budget is down
from Rs 36,017 crore in 2013-14 to Rs 31,818 crore this year. With most of this
pre-allocated for equipment bought in preceding years, little is left for buying
the Rafale fighter, which the defence ministry is negotiating with French
vendor, Dassault. With the Rafale’s contract value estimated at Rs 80-1,00,000
crore, the signing advance would be Rs 10-15,000 crore. Additional allocations
would be needed for the contract to be signed this year.

The navy’s
capital allocation has been raised from Rs 19,600 crore in 2013-14 to Rs
22,312 crore this year. A major capital procurement this year will be the Rs
45,000 crore contract for seven Project 17A stealth frigates that two public
sector shipyards will build --- Mazagon Dock Ltd, Mumbai; and Garden Reach
Shipbuilders and Engineers, Kolkata.

In his
budget speech, Mr Jaitley also announced that the FDI cap in defence would be
raised from 26 per cent to 49 per cent. While adding a reformist patina to an
otherwise unremarkable defence budget, this was really a policy announcement,
unconnected with defence allocations.

6 comments:

Anonymous
said...

THERE IS NO WAY ANY CUTS CAN BE MADE EXCEPT THAT THE ARMY MUST INCREASE THE TEETH RATIO AND DRASTICALLY CUT ITS TAIL . ALL NON COMBATANT JOBS SHOULD BE OFFLOADED TO TRADE AND OFFLOAD THE MAINTAINENCE OF VEHICLES TO TATA ASHOK LEYLAND MARUTI, MAHINDRA NO NEED TO HAVE ENGINEERS AND WORKSHOPS FOR THESE VEHICLES . ONLY SPECIALISED OVERHAUL FACILITIES FOR MISSILES , RADARS , TANKS ELECTRONICS IN FIELD AREAS OR OTHERWISE THE OEMS CAN BE TASKED TO SET UP REPAIR FACILTIES NEAR BORDER AREAS . THE MOD EXPENDITURE OF OVER 3000 CRORES IS MAINLY ON REPUBLIC DAY PARADE AND OVERSEAS VISITS AND THESE CAN EASILY BE PRUNED TO CELEBRATE THE PARADE ONCE IN FIVE YEARS AND DRASTIC REDUCTION , RETIREMENT , VRS FOR THE BULK OF THE 18000MOD EMPLOYEES WHO ARE A NON PRODUCTIVE OBSTUCTIVE AND NON RESULT ORIENTED LOT . A MODERN MOD DOES NOT REQUIRE MORE THAN 300 EMPLOYEES . ALL CLASS 2, 3, 4,APPTS BE ABOLISHED AND SAVINGS CHANNELLED INTO THE ARMYS CAPITAL EXPENDITURE WHICH IS DANGEROUSLY LOW AND NEED TO BE UPPED FROM 18 TO ATLEAST 40 %. WITH TRIPLING OF SALARIES POST 7 PAY COMMISSION THE DEFENCE BUDGET WILL BALLOON TO OVER 5LAKH CRORES UNLESS OLD COLNIAL SETUPS ARE WOUND DOWN AND ONLY COMBAT CAPABILTIES BUILT UP . THE ARMY RR , ITBP , ASSAM RIFLES SSF SSB NEED TO EQUIPPED WITH THE LATEST ARMS NIGHT VISION DEVICES , CLOTHING SUPPORT ARMS SO THAT THEY CAN EASILY SWITCH ROLES .

Frankly speaking when we talk about Indian economy which is just after US,China,Japan we forget about the population of India. When this economy or GDP is compared against per capita basis with different countries then India lies behind African countries. The even 2% rise in defence budget was made with extreme difficulty considering funds to be allocated for food subsidy,fuel subsidy,etc. In ground reality its absolutely impossible to have a defence budget above US $40-45 billion for India. So with this limited resources we have to plan the best for defence.